Statement of working: is it working?

A dilemma

At present, every country across the globe is battling covid-19. On the one hand, the clamour for patent waivers for covid drugs, vaccines and related medical devices has been gaining momentum; on the other hand, the issue of working of patents related to essential drugs has once again come into focus.

The Indian government has been directed by the judiciary to reach out to manufacturers, patent owners and licensees to ramp up production capacities of drugs that are essential for the treatment of covid-positive patients, as well as to explore licensing options in this regard. While dealing with the issue of the shortage of covid-19 drug Tocilizumab (Tocilizumab (antibody) per se is not currently protected by an existing Indian patent, although Roche holds a patent pertaining to a formulation comprising Tocilizumab, among other constituents), the High Court sought detailed information from manufacturers regarding quantities of the drug that can be made immediately available to India and also the quantity of the drug that has been imported or sold in India since March 2020, either by Roche or through its licensees or approved importers in India.

The seeking of this information is paralleled in India’s statement of working requirement. The basis of this requirement is to encourage innovation and to ensure that patents are being worked on a commercial scale. Most jurisdictions globally require the working of patented inventions. However, Indian patent law places an additional and peculiar obligation on the patentee to disclose not only whether the invention is being worked in the country but also the extent to which it is being worked.

Background

Delving briefly into the history and legislative intent, the rationale behind the statement of working requirement – as provided in the Ayyangar Committee Report on Patents 1959 – is to enable the Patent Office to have detailed particulars of the actual working of an invention to enable it to quickly and efficiently dispose of applications for compulsory licences and endorsements of licences of right. The Ayyangar Committee considered that such information would be useful for statistical purposes, as no estimate could be made at the time regarding the extent to which patented inventions were being worked in India. In fact, it even recommended that a special government unit be set up to obtain information regarding the working of patents.

The committee viewed the non-working of patents to be extremely detrimental to the Indian economy and proposed several remedial actions (eg, revocation of patent on the grounds of non-working and the issuance of compulsory licences). As a result, the statement of working has assumed significance.

Legislative provisions

Section 146 of the Patents Act 1970 empowers the controller to require a patentee or licensee to furnish information or periodical statements as to the extent to which a patented invention has been commercially worked in India.

As per Patent Rule 131(2), the statements must be filed for each financial year within six months from the expiry of the financial year.

While the failure to file a statement of working does not result in the abandonment of a patent, it may unnecessarily raise a presumption of ‘non-working’, enabling any interested party to apply for a compulsory licence. Moreover, the law also provides for a financial penalty (approximately $20,000) – although there has not been any reported instance in which this has been imposed. However, there have been instances where the Patent Office has issued notices to the patentees requiring submission of the details of statement of working.

A patented invention is said to have been ‘worked’ if the patent is commercially exploited in India in relation to the manufacture and sale of the product or process by the patentee or its licensees.

Significantly, the legal position on whether the ‘importation’ of the patented invention into India qualifies as working has witnessed a sea change. Legislatively, the Patents Act appears to discourage importation. In particular, Section 83 of the act, while elucidating the general principles applicable to the working of a patented invention, states that patents are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article. Further, Section 84(7)(e) of the act states that “reasonable requirements” of the public will be deemed not to have been satisfied if the working of a patented invention is hindered or prevented by the importation from abroad of the patented article.

In March 2012, Natco Pharma was granted a compulsory licence for German pharmaceutical giant Bayer’s anti-cancer patented drug Nexavar. In an order, the controller general held that importation does not qualify as ‘working’ in India. In the appeal against the order, the Intellectual Property Appellate Board, maintained that the compulsory licence held that importation of a patented article in some instances, depending on the circumstances (eg, the technology at issue, or the feasibility of an invention being manufactured in India), would qualify as ‘working’.

More recently, in a January 2016 decision refusing an application for compulsory licence filed by Lee Pharma for AstraZeneca’s patent for diabetes management drug Saxagliptin, the controller general held that manufacturing in India is not a pre-condition for working. Therefore, the mere fact that the patentee was importing the patented product into India and not actually manufacturing it in India was not considered detrimental.

Significance

The statement of working filed by a patentee, inter alia, played a significant role at the time the only compulsory licence was ever granted in India. The Patent Office relied heavily on the statements filed by Bayer for its Nexavar patent to conclude that the amount of the drug imported by the patentee was grossly inadequate.

During the 2019 Ticagrelor infringement suit proceedings (Astrazeneca Ab v P Kumar, T Rao and Dr Reddys Laboratories Limited), the Delhi High Court considered statements of working filed in respect of AstraZeneca’s genus patent, which referred to Brilinta and Axcer – brands of the defendants’ drug Ticagrelor – as a credible challenge to the validity of AstraZeneca’s species patent pertaining to Ticagrelor on the grounds of anticipation, resulting in the interim injunction granted in favour of AstraZeneca for the sale of the defendants’ drug Ticagrelor being vacated.

In another infringement suit for the same drug, Astrazeneca AB v Emcure Pharmaceuticals Limited and Msn Laboratories Limited, the defendants again relied on inter alia statements of working filed in respect of the genus patent, which stated that the genus patent had been worked through the manufacture of Ticagrelor, to challenge the validity of the species patent. However, the court refused to accept the defendants’ arguments and upheld the validity of the species patent.

It seems then that the statement of working has become significant in the area of its intended domain (ie, determining the extent of working patented inventions), but is also being relied on for other aspects as well.

Recent developments

As the world grapples with covid-19, the Indian Patent Office has introduced amendments to the Patent Rules concerning the statement of working as the form to be used while submitting requisite information on working. The underlying intent of this amendment is to simplify the rules and procedures for a patentee or licensee.

In a public interest litigation filed in 2015, it had been brought to the attention of the Delhi High Court that a significant number of patentees had failed to submit information regarding the working of patents. It was pointed out to the court that one of the major difficulties in complying with the requirement was the complicated nature of the prescribed form (Form 27). Subsequently, the High Court directed the government to introduce reforms in Form 27. At the time, the court also clarified that the information provided in Form 27 cannot be considered confidential and must be submitted by all parties (ie, patentee as well as licensees).

After consultation with various stakeholders, in October 2020 the Patent Office introduced a number of amendments in the Patent Rules related to the filing of the statement of working as well as Form 27. Earlier, the statement of working was required to be filed at the end of the calendar year within three months of the end of each year (ie, by 31 March). However, the statement of working is now required to be filed at the end of each financial year within six months of the end of each financial year (ie, by 30 September).

Further, in a major relief to patentees, the amended rules/form allow a single statement to be filed in respect of multiple related patents if the approximate revenue or value accrued from a particular invention cannot be derived separately from the approximate revenue or value accrued from related patents, as along as the multiple related patents belong to the same patentee.

Moreover, the amended form has done away with the statement on whether the public requirement has been met partly, adequately or to the fullest extent at a reasonable price. This is to remove any ambiguity in the information being provided by patentees, as the statement was considered to be subjective and open to interpretation.

The amended form also no longer requires the submission of details of licensees and sub-licensees and country details regarding the importation of the patented product. Now, only the figure of the approximate revenue or value accrued from the imported product is required to be submitted.

However, in line with the clarifications and directions issued by the High Court, the patentee as well as every licensee, must now submit the required information before the Patent Office.

The earlier Form 27 required submission of details regarding the ‘quantum’ and ‘value’ of the patented product manufactured in or imported into India. The present form requires details regarding ‘value accrued’ to a patentee or licensee from the patented invention. This change is significant on two counts:

• first, to an extent, it addresses the confidentiality concerns of patentees regarding the disclosure of the quantum of a product being manufactured in or imported into India; and
• second, in circumstances where the patented invention forms a component or part of a larger system, patentees now find it far easier to calculate the revenue or value accrued to them for the patented invention as compared to the ‘value’ of the invention sold or manufactured.

Comment

The amendments implemented by the Patent Office are definitely a step in the right direction, as they go a long way to reducing the burden on patentees managing large patent portfolios and dealing with a large number of licensees and sub-licensees. The changes are consistent with India’s current policy of improving the ease of doing business and should lead to an increase in compliance with statement of working requirements in India.

Having said that, some concerns remain. For instance, confidentiality concerns regarding the information being published by the Patent Office continue unabated. There have been instances where patentees have been forced to re-negotiate their licence agreements with some licensees, as the revenue generated by the other co-licensees fell in the public domain.

Patentees engaging with a large number of licensees or sub-licensees might find it cumbersome to ensure compliance with the requirement, as besides the patentee, every licensee and sub-licensee must now individually submit a statement of working before the Patent Office.

Above all, the larger question worth pondering is whether such a provision is even required today, considering India has come a long way from the “under-developed nation” it was described as in the Ayanggar Committee Report 1959. India is now the world’s fifth largest economy, often referred to as the ‘pharmacy of the world’.

Moreover, it is clear from the Ayanggar Committee Report that such a provision may have been important at the time due to lack of alternative resources for obtaining relevant information, but today, when it has become more difficult to hide information rather than obtain it, a number of resources are available to determine whether a patent is being worked in India and whether the requirement of the public at large is being met.

Meanwhile, patentees are well advised to ensure compliance with the requirements of the law as it stands. It is worthwhile revisiting strategies for complying with this requirement as the information being provided by them is not only being used to determine the extent of the working of an invention but for other aspects as well. So, until there is further change, all steps should be taken to comply with the working requirement.